EDMONTON - Albertans desperately need a mandatory pension program to ensure they don't retire into poverty, but a supplementary pension plan being considered by the Alberta and British Columbia governments is a step backwards, says the Alberta Federation of Labour.
AFL president Gil McGowan says the supplementary plan proposed by the two provinces is flawed because it's not mandatory and — even when added to Canadian Pension Plan and Old Age Security benefits — still wouldn't provide workers sufficient money for retirement.
"It's clear we need some fundamental reforms, but based on the analysis that we've commissioned, it's clear to us the Alberta-B.C. model simply won't do the job," McGowan said Thursday from Dawson City, Yukon where the western premiers are meeting this week.
"If our provincial leaders are serious about introducing new policy that extends pension coverage to a greater percentage of the Alberta population, they can't introduce a system that's not mandatory."Employers that don't have pension plans now aren't likely to sign up if they still don't have to, he said.
The AFL says only 40 per cent of Canadians have workplace pension plans, but the percentage is much lower in Alberta. It says only 18 per cent of Albertans working in the private sector have pension plans.
The situation has prompted the Alberta government to work with B.C. on a supplementary pension plan for workers with no company pensions and last November the two provinces released a report of a joint expert panel that recommends how a joint plan should operate.
"More and more people ... are starting to realize that if major policy changes aren't initiated, significant numbers of Canadians — probably millions of them — will face the very real prospect of poverty in their old age," said McGowan.
But the AFL insists the Alberta-B.C. plans is "at best an awkward Band-Aid solution."
McGowan says an actuarial consulting firm hired by the AFL found that a person earning $50,000 who retired at age 65 would likely receive only about half the pension income considered necessary for a comfortable retirement. He said the plan could generate as little as 14 per cent of what a person earned before retiring — far below the recommended threshold of 70 per cent.
That's because the plan also doesn't require employers to match employee contributions, he noted.
McGowan said the proposed plan also gets low marks because it is a defined contribution plan rather than a defined benefit plan, meaning that if the stock market collapsed after the worker retired, the benefits would be reduced.
"From our perspective, the current recession has not only diminished the nest eggs most people set aside for retirement, but it shone a light on the patchwork system that we've created in the country," he said.McGowan said the biggest problem with the supplemental plan is it diverts attention away from the real issue — the fact the Canadian Pension Plan is inadequate and requires major reform to ensure working Canadians can retire with dignity.
The AFL released the report at the western premier's conference to discourage other provinces from signing on to the plan rather than pressing for changes to the national pension plan, McGowan said."Our provincial and federal leaders have to start thinking very seriously about making big changes on the pension front as opposed to half measures like the proposed Alberta-B.C. plan," he said.
Alberta Finance officials say the province is not committed to any one plan and it is keeping its options open.
"This is just one of the proposals that they are taking into consideration," said Alberta Finance spokeswoman Jennifer Guzzwell. "We're not exactly sure what the plan will look like and whether it will be mandatory or not."
She said finance ministers from B.C., Alberta, Ontario, Nova Scotia and Manitoba have scheduled a meeting in July to discuss the possibility of a national supplementary pension plan.
Alberta Finance spokesman Bart Johnson added the province has no plans to proceed immediately with the Alberta-B.C. proposal."We would prefer to meet with other provinces and see what we can come up with," he said.
McGowan applauded the Alberta and B.C. premiers for considering "long overdue pension reform" and said a national summit on the issue is a great place to begin.
"We're confident that if that kind of meeting is held and all the information is put on the table, Canadians will agree with us that expanding the CPP is the best way forward."
Edmonton Journal, Thurs Jun 18 2009Byline: Darcy Henton
Canadians desperately need a mandatory pension program to ensure they don't retire into poverty, but a supplementary pension plan being considered by the Alberta and British Columbia governments is a step backwards, says the Alberta Federation of Labour.
Federation president Gil McGowan says the supplementary plan proposed by the two provinces is flawed because it's not mandatory and -- even when added to Canadian Pension Plan and Old Age Security benefits -- still wouldn't provide workers sufficient money for retirement.
Employers that don't have pension plans now aren't likely to sign up if they still don't have to, he said.
The labour federation said only 40% of Canadians have workplace pension plans. The percentage is much lower in Alberta, where only 18% of residents working in the private sector have pension plans.
The situation has prompted the Alberta and B.C. governments to work on a supplementary pension plan for workers with no company pensions.
Finance ministers from B.C., Alberta, Ontario, Nova Scotia and Manitoba have scheduled a meeting in July to discuss the possibility of a national supplementary pension plan.
Canwest News Service, Fri Jun 19 2009
The recent meeting of government finance ministers at Kananaskis took an important first step toward improving Canada's pension and retirement landscape. But there is tougher slogging ahead.
Facing at least four proposals to shore up Canadians' savings for retirement, the federal government's Jim Flaherty announced it would proceed first with defined-contribution pooled registered pension plans, aimed at providing pensions to small-business employees and the self-employed currently without any company pension.
Another proposal, to expand the Canada Pension Plan, has been moved to the back burner and may simmer there for some time while government deficits continue, according to new federal minister of state for finance, Ted Menzies of Calgary.
Any reform of pensions in the country revolves around a number of issues -- whose retirement income is it targeted to improve, who will manage it, who takes the investment risk, and will participation by employers and employees be mandatory or voluntary?
The proposed PRPP would be aimed at the 67 per cent of the labour force without corporate pensions. It would be administrated by regulated financial institutions, including trust and insurance companies, which naturally drew praise from the Canadian Bankers Association. As for participation, jurisdictions would determine if it's mandatory for employers, and it would likely be voluntary for employees.
For those who do join, the defined-contribution nature is a compromise -- employees would get an automatic 100-per-cent return through employer matching of contributions, but employees would have to take on the investment risk, with no fixed pension benefits.
"Reading between the lines, it would be portable and go across industry lines. Both of these aspects would be an improvement," said Russ Purdy, a retired labour-relations consultant in Edmonton. "The absence of a mandatory employer contribution will get a 'thumbs down' from the union movement and the NDP, of course."
Certainly many unions, including the Alberta Federation of Labour in a meeting with The Edmonton Journal editorial board, want pension reform to be universal and include their members. They also want the government to manage the plan and take the investment risk, with participation by employers to be mandatory. They want the so-called "CPP on steroids," where taxpayers take all the investment risk and employee benefits are guaranteed.
There are two obvious arguments against universality. One is that employees who already have a generous defined-benefit corporate pension shouldn't have an enhanced defined-benefit government plan at taxpayer peril. The second is that corporations, if forced to pay more into CPP than they already are, could reduce contributions to or eliminate their defined-benefit company pensions.
With small businesses, the question is whether they can afford to contribute to a corporate pension plan or a supplemental or beefed-up government plan of any sort, in addition to current CPP contributions. The price might be cutting jobs.
With the PRPPs, employee participation is another issue.
"I think the biggest problem will be the voluntary nature of the scheme," Purdy said. "There's a certain portion of Canadians who don't take advantage of the current voluntary schemes and adding yet another one doesn't seem to be particularly helpful, if these are indeed the people we are supposed to be helping."
In fact, just 55 per cent of Canadians have registered retirement savings plans, and only five per cent of all RRSP contribution room was used up as of 2008, when the average annual contribution was $2,700, according to last available data.
The PRPPs are a good start, aimed at the people who are most in need of savings for retirement. The next step is to increase the portion of their retirement income that is guaranteed, which continues to shrink as defined-benefit pensions disappear and low interest rates scare people with RRSPs from converting to life annuities. That can be done by having corporations or the government or insurance companies take on investment risk and by making saving compulsory.
Bob Baldwin, of the Institute for Research on Public Policy, noted that finance ministers will have to consider trade-offs, "such as those between respecting individual preferences and implementing broad-based instruments, achieving certainty of benefits versus certainty of contributions, and ensuring income adequacy versus plan affordability."
None of those decisions are easy.
One somewhat radical idea that has been floated involves a combination of a super-sized CPP plus corporate defined-contribution plans.
Under this scenario, everyone would belong to a giant CPP, run by the government with investment risk taken by taxpayers, with contributions by employers and employees increased from current levels, and defined benefits enhanced.
At the same time, corporate defined-benefit pensions would be eliminated and companies would instead offer scaled-down, defined-contribution pensions run by financial institutions, again with employer contribution-matching and with employees taking the investment risk. Participation would be mandatory for companies and voluntary for employees.
I, and my teenage sons, could live with that.
Edmonton Journal, Fri Jan 14 2011Byline: Ray Turchansky
Albertans want pension reform, despite what the province's finance minister might say, according to the president of the Alberta Federation of Labour.
On Sunday, Gil McGowan wrote a letter that ran in a Charlottetown, PEI newspaper, where Canada's finance ministers are meeting to discuss pensions.
In it, he argued that Alberta's finance minister, Ted Morton, does not speak for the majority of the province with his "anti-CPP rhetoric.""Don't believe him," McGowan wrote. "The truth is Albertans have less retirement security than many other Canadians. While only 38% of workers in Canada are covered by workplace pension plans, that number is only 33% in Alberta."
He went on to point out that Morton's predecessor, Iris Evans, has said the government needs to play a role in addressing problems with pensions, possibly even expanding the CPP.
"Don't allow Alberta's finance minister to derail pension reform for all Canadians," McGowan said. "Please support reform that focuses on expansion of Canada's most efficient, economical and portable pension vehicle - the CPP."
Morton has argued that Albertans don't support changes to Canada's pension system because "it is not a targeted response to the issue at hand.
"Rather it is an overreaction," he said recently.
He also said CPP reform might benefit the "significant minority" who aren't saving enough for retirement, but it would give "additional and unnecessary benefits" to those who have saved.
Provincial and territorial finance ministers are slated to meet in PEI Monday to discuss pension reform and other issues.
Federal Finance Minister Jim Flaherty has proposed two key changes to CPP, including increasing benefits and allowing financial institutions to offer defined contribution registered pension plans.
In a letter he urged his provincial counterparts to support his plan.Edmonton Sun, Sun Jun 13 2010 Byline: Alyssa Noel
Launch of AFL Real Pension Reform Campaign November 16, 2010 Matrix Hotel, Edmonton, Alberta
Good morning and welcome.
We've invited you here today because a crisis is looming: a crisis in retirement income.
It's a crisis which, in many ways, has already begun ... but which will only worsen as more and more Canadians reach retirement age without adequate savings.
It's a crisis which will rob millions of Canadians of security and dignity in their retirement years.
It's a crisis that will hurt the economy as the spending power of the seniors shrinks.
And it's a crisis from which Albertans will not be spared.
The good news - and there is good news - is that nine provinces and the federal government recognize that a serious problem exists and are prepared to do something about it.
The bad news is that our province, the province of Alberta, is acting as a spoiler and standing in the way of a real national solution.
Other provinces and the federal government agree that Canadians aren't saving enough for retirement.
They agree that fewer and fewer people are covered by workplace pensions.
They agree that the private investment industry has failed miserably to deliver on all the promises they've made over the years about private retirement savings and the dream of Freedom 55.
Other provinces and the federal government also agree on what action needs to be taken.
They agree that a big part of the solution lies in expansion of that one part of pension picture that remains solid: the Canada Pension Plan.
Unlike many private sector workplace pensions, CPP is fully funded and actuarially sound for at least the next 75 years.
It's also portable from job to job and from province to province.
And unlike mutual funds, CPP charges rock-bottom management fees and provides a guaranteed benefit, as opposed to the uncertainty of most mutual funds which are tied to fluctuations in the stock market.
The only real problem with the CPP is that it's too small. With an average annual payout of only $6,000 and a maximum annual payout of only $11,000, CPP is one of the least generous national pension plans in the developed world.
Pension experts say that people need income equivalent to about 70 percent of their pre-retirement income to maintain their standard of living in retirement. But CPP only replaces about 25 percent for people earning $47,000.
That's where we in the labour movement think pension reform needs to start.
We're calling for a gradual doubling of CPP benefits, so that CPP can replace 50 percent of pre-retirement income for people earning $47,000 a year.
It's a modest, incremental solution which has been endorsed by seniors groups, by student groups, by prominent economists and academics and, as I've said, by the Finance Ministers and Premiers from every province except our own.
Even the federal Conservatives support CPP expansion.
Federal Finance Minster Jim Flaherty is behind the idea. Prime Minister Stephen Harper has given it his stamp of approval.
Even Diane Ablonczy, one of the last remaining original Reform Party MPs and currently Secretary of State for Seniors, is giving CPP expansion her support.
Just two weeks ago, I had a long talk with Minister Ablonczy in her office on Parliament Hill.
She admitted that, for ideological reasons, she hesitated to support CPP expansion.
But as the federal minister responsible for seniors, she said she's met too many seniors who simply can't make ends meet.
She's seen too many seniors who worked hard all their lives, raised families and contributed to their communities ... but who didn't have workplace pensions and just couldn't find any money at the end of the month to save for their retirement.
That's why she says we need across-the-board, mandatory solutions like an expanded CPP.
Unions. Seniors. Students. Economists. Provincial leaders. Federal leaders.
It's all part of what the Globe and Mail calls an "emerging national consensus" to address the looming crisis in retirement income by expanding CPP.
It's a consensus that could lead to a ground-breaking agreement when finance minister gather in Kananaskis a month from now. Alberta could be the site of an historic policy breakthrough ... or the meeting in Kananaskis could be remembered only as a missed opportunity.
At the moment, we remain optimistic ... but we're also more than a little frustrated.
The only dissenting voices to be heard on the issue of CPP expansion are coming from banks and insurance companies - who want to keep charging Canadians outrageous fees for the under-performing retirement planning services provide - and from the Alberta government, which has staked out an ideological position that is at odds with the facts and which does not reflect the opinion of Albertans or uphold their best interests.
Speaking on behalf of his government, Alberta Finance Minister Ted Morton has said that Albertans don't need an expanded CPP. He has said they don't want an expanded CPP. He has also said that real solutions lie elsewhere.
In particular, in speeches, in guest columns, and most recently in a new document entitled "Alberta Aging Population Policy Framework" (which was released just last week) Morton outlines a vision for seniors policy that most Albertans have not heard about ... but which almost nobody would support if they had.
For example, Morton says the onus should be on individual Albertans to save for their own retirements - even though the evidence clearly shows that most Albertans don't have enough money left over at the end of the month to set aside for an adequate retirement.
Morton says that if they don't have adequate income, seniors should be encouraged to sell of their assets, most notably their homes.
Morton also says the looming crisis in retirement income should be seen as an opportunity for businesses worried about labour shortages because it will force more and more people to keep working until their 70 or 75 years old.In fact, one of the only major policy promises in the government's new Aging Population Policy Framework is to provide new career counselling services to seniors ... presumably so they can spent their golden years working as Wal-Mart greeters instead of enjoying a dignified retirement.
But that's not all. If any additional pension programs are needed, Morton says they should be voluntary - meaning employers should be able to opt out if they chose - and they should be managed by the private investment industry as opposed to the lower-cost, more efficient and more accountable people who run the CPP.
That's the Alberta government's vision for retirement policy. Sell your house. Work until your 75. And keep paying exorbitant fees to banks and insurance companies for under-performing mutual funds.
That's why we're launching our campaign today. And that's why our slogan is "Hey Ted, Albertans want REAL pension reform."
Behind me, you see our new campaign website at www.realpensionreform.org.
On the site you'll find all sorts of information, documents and links dealing with issues of retirement insecurity and pension reform.
We're also releasing the results of a province-wide poll that we conducted last month.
Like previous polls conducted by other labour organizations and media outlets, our poll shows that an overwhelming majority of Alberta support expansion of CPP as a solution to the looming crisis in retirement income.
78 percent of those surveyed don't buy the argument advanced by Ted Morton that Albertans have already made adequate arrangements for their retirement.
67 percent don't buy the argument that banks and insurance companies should be chosen over the CPP to run an expanded pension system.
And 71 percent say Ted Morton and the Alberta government should "get out of the way and allow changes to CPP that will put more money in the pockets of all Canadians when they retire."
We're also releasing a report outlining the real situation in Alberta when it comes to retirement income.
The report was prepared for us by economist and pension expert Hugh MacKenzie - and is appropriately titled "It IS Broke - So Fix It!"
So how bad is the situation in Alberta? How great is the need for reform?
Well, our report shows that Alberta has the lowest proportion of workers covered by workplace pensions in the country - and that number is falling.
Our report shows that only 38 percent of Albertans contributed to an RRSP in 2008 - and the median contribution was only $3,200 a year.
Our report shows that 60 percent of Alberta's RRSP contributions are made by people earning more than $80,000 a year, meaning that middle and low-income Albertans are being left out and left behind.
Our report shows that in 2007 half of Alberta seniors had no investment income at all and that a third of them survive on less than $16,000 a year.
And our report shows that management fees charged by mutual fund companies are eating up between 40 and 60 percent of the investment gains earned by individual Albertans on their retirement savings.
That's the real face of Alberta's retirement income system. It's a system that's broken. It's a system that's exposing a growing number of Albertans to insecurity. And it's a system that will only get worse if major fixes are not implemented soon.
So the goal of our campaign is to send a message to two groups: the first being finance ministers from other provinces and the second being Members of the Legislative Assembly here in Alberta.
For finance ministers, our message is simple: Ted Morton doesn't speak for all Albertans.
If he changes his mind and supports the consensus in favour of CPP expansion great. But if he doesn't, if he sticks to his guns about doing nothing in the face of the growing pension crisis...well, then we want to make it clear that he's out of step with the majority of Albertans.
Our message for Alberta MLAs, and especially for members of the government caucus, is also clear.
We want to send them the message that CPP expansion is needed and that it makes sense.
We want them to understand that an expanded CPP would be good for individual Albertans because it will give them a low-cost way to generate an increased stream of guaranteed income in retirement.
We want them to understand that an expanded CPP would be good for employers, especially small employers, because it will allow them to provide increased retirement benefits for their employees without exposing them to the risks and liabilities associated with running their own pension plans.
We want them to understand that an expanded CPP will be good for taxpayers because it will mean that fewer people will have to rely on tax funded supplements like GIS.
Finally, we want them to understand that an expanded CPP would be good for our broader economy and society because it would give seniors more money to spend in their communities and it would allow them to live with security and dignity.
In the end, despite the spin coming from people like Finance Minister Morton, tens of thousands of Albertans are facing a bleak retirement future.
But it doesn't have to be that way. We know what needs to be done. The rest of Canada is in the process of mustering the political will to solve the retirement income crisis before it takes hold.
What's required now is for Albertans to speak out and to demand that their provincial government either get on board with the move to expand CPP or get out of the way.
Thank you all for being here this morning.
Let's hope that when Canada's finance ministers gather in Kananaskis this December Alberta will join them in delivering the Christmas present that Canadians really need - the gift of retirement income security.
Gil McGowan, President
More than half of Canadians fear they aren't saving enough money for their retirement. Unfortunately, their fears are justified. Statistics show one in five Canadian working households have no retirement savings.
Only about one-third of workers in Alberta belong to workplace pension plans. Many of those who do may still not be socking away enough money for their retirement years.
People are living longer and costs are rising. Financial advisers have long suggested that retirees will require 60 to 70 per cent of preretirement income to live on after they leave their jobs, but the latest research suggests that range may still be too low. Many Canadians are likely only going to be able to muster 50 per cent of the pre-retirement income and in Alberta it is expected to be even less than that.
The governments of Alberta and British Columbia have seen the shocking predictions and are wisely making efforts to do something about it. In October 2007, they created a joint expert panel to look at the problem and come up with a program to bolster the Canada Pension Plan and Old Age Security income many of their residents will have to rely on for their existence when they retire. The Alberta Federation of Labour says those two federal programs will only provide about 14 per cent of the pre-retirement income of workers, leaving a huge gap between what they have and what they will need.
The obvious solution would be to dramatically bolster the federal programs-- a move called for by the federal NDP just two weeks ago.
NDP Leader Jack Layton says Canada is in a pension crisis and CPP benefits need to be boosted from about $900 monthly to $1,800. That, he says, would require a payroll deduction of about another 2.5 per cent. CPP was initially designed to provide replacement income of only 25 per cent of the average industrial wage, or about $11,000 annually.
Even the head of the Canada Pension Plan Investment Board has called for creation of a supplementary CPP benefit to top up the existing plan, noting that 11 million Canadians have no access to a pension.
But Ottawa has seen no urgency.
Prime Minister Stephen Harper told Parliament the government is still consulting with Canadians and the provinces on pension reform. Alberta MP Ted Menzies, the federal finance minister's point man on pensions, has promised to submit proposed recommendations for changes for the country's finance minister's to consider at their next meeting in December.
Alberta and British Columbia are holding Harper's feet to the fire by saying they will press on with their own ABC plan if the federal government fails to deliver meaningful proposals for reform.
Alberta Finance Minister Iris Evans told Canwest News Service this week that there are "frightening" gaps in the retirement plans of Canadians and Alberta and B.C. will push on alone if they have to. "It's not going to slow our horses out here," she said, in true Alberta fashion.
Albertans and all Canadians need action on this file now, but there is value in a national plan that is portable. How well will we be served if every region of the country has its own plan? Already we're hearing that the Wildrose Alliance wants to pull the province out of CPP in favour of an Alberta-only plan.
Critics have also raised some serious concerns about the ABC plan, which is proposed to be voluntary. That means employers, who currently don't have their own plans, won't have to participate in this one either or contribute to their employee's pensions. There are also concerns that the ABC plan is to be a defined contribution plan rather than a defined benefit plan that guarantees retirees a specific monthly amount when they retire. Under a defined contribution plan, benefits could be reduced if the economy sagged.
While the ABC proposal is better than what Albertans have today-- since some of them have nothing-- let's hope Ottawa answers the bell with something that's more than a Band-Aid. Canadians need pension reform now if they are to be spared a retirement into poverty.
Edmonton Journal, Fri Nov 6 2009
Labour groups hope to pressure Alberta to accept federal proposals to improve pensions.
In June, Alberta Finance Minister Ted Morton said the province will not support a proposed expansion of the Canada Pension Plan. The Alberta Federation of Labour is launching a campaign with the Canadian Labour Congress that it hopes will change that position. AFL President Gil McGowan says Canadians face a looming retirement income crisis and expanding the Canada Pension Plan is the best way to deal with it. The labour groups plan to lobby members of the legislature, set up a website and release a poll that suggests that most Albertans favour expanding the CPP. McGowan says they hope Alberta will give up its opposition to improving the pension system before federal and provincial finance minister meet next month in Kananaskis.
iNew 880AM, Mon Nov 15 2010
AFL concerned about plan to keep Albertans working longer: Workers will rebel against efforts to force deferral of retirement dreams
Plans announced by the provincial government today to keep Albertans working longer are being viewed with concern by the labour movement.
“If Employment and Immigration Minister Thomas Lukaszuk is talking about providing supports and incentives to people who voluntarily choose to work longer, that’s one thing,” says Gil McGowan, president of the Alberta Federation of Labour (AFL), which represents 140,000 workers. “But if he’s talking about forcing people to work past retirement age against their choice, then he’s going to have a war on his hands. Working Albertans won’t take kindly to having their retirement dreams undermined or taken away.”
McGowan criticized the consultation process that led to today’s announcement, saying it was another example of the government listening to employers, but doing little to seek the opinions of workers.
“It appears there were months of consultations with employers who want to keep their employees working longer, but little consultation with those who will be most affected – the workers themselves,” he says.
“Workers deserve to be able to look forward to retirement security at the end of their careers. The labour shortage must not be used as an excuse to allow employers to weaken retirement and pension policies so that people are forced to keep working by diminishing financial circumstances.”
- 30 –
Contact: Gil McGowan, president, Alberta Federation of Labour @ 780-218-9888
Terry Inigo-Jones, AFL Communications Officer, 780-910-1137
The Alberta Federation of Labour (AFL) is calling the Alberta government out on its stance against an enhanced Canada Pension Plan (CPP).
In a report released on November 16 by the AFL, It IS broke...so fix it!, the labour organization makes it clear that it believes the provincial government is not acting in the best interest of Albertans.
Alberta's Minister of Finance and Enterprise, Ted Morton, has said that raising CPP premiums will cause job losses in the province. However, the AFL claims there is no evidence to support that view.
"Experience with policy measures that increase payroll costs, including both payroll taxes and minimum wages, shows that the effects, if any, are so small that they are swamped by the normal ebbs and flows of economic activity," the AFL report says. "Extensive academic literature finds no basis for claims for long-term negative employment effects from payroll taxes."
The report goes on the say that pension coverage is weaker in Alberta than in other provinces and that Albertans are in fact, not better off in the current system than other Canadians, as their government suggests.
"So while the government of Alberta's opposition to an expansion of the Canada Pension Plan may serve the interests of the Canadian retail mutual fund industry and support the living standards of its high-flying leaders," the report boldly states. "It does not serve the interests of Albertans."
Canada Benefits, Mon Nov 16 2010 Byline: April Scott-Clarke
Our Aging Boomers: A Four-Part Series
Saturday: Early boomers hit 65
Sunday: The coming health crunch
Monday: How boomers will define aging
Today: The pension pinch
As the first wave of baby boomers turn 65, the number of Canadians approaching retirement is growing at a pace never seen in Canadian history.
Problem is, for many of them, their bank accounts aren't.
Freedom 55, some Canadians are finding, is barely attainable at age 65 or even 75.
The crush of the economic downturn - which saw many boomers loose large chunks of their life savings - has forced some of them to work several more years than initially envisioned in their retirement plans.
Others simply haven't socked away enough of a nest egg over the decades to live comfortably in what should be the best years of their lives.
A majority of Canadians working in the private sector don't have pension plans.
The boomers may be coming in waves, but a financial tsunami could be in their wake.
"You'll find in five to 10 years time there's people who will wake up and say, 'Crap, what's happened?' " says Robert Robotham, chairman of the Calgary chapter of CARP, Canada's association for the 50-plus.
Ideally, boomers will have 60 to 70 per cent of their normal employment income once they reach retirement, Robotham notes, but anecdotal evidence suggests many are only receiving 30 per cent, or slightly more, of their previous working wages.
"If they want to maintain the same standard of living, it's going to be difficult," he adds. "It's not an immediate problem, but it's a future problem."
Certainly, governments across Canada believe it's a problem. They're in the midst of crafting some solutions to alleviate the looming retirement income crunch.
Last month, provincial and federal finance ministers met in Kananaskis and came away with an agreement to create a private-sector pension vehicle to boost retirement savings.
The Pooled Registered Pension Plans is targeted at small- and medium-sized businesses, and the self-employed, who don't have a workplace pension option.
"It does address the issue that we're focused on, which is people in their middle years not saving adequately for their retirement," federal Finance Minister Jim Flaherty told reporters at the conference.
"The real benefit of it will be seen down the road when people retire and they have adequate retirement income."
It is estimated six in 10 Canadian workers in the private sector have no private pension plan. Furthermore, only one-third of Canadians make contributions to RRSPs.
Flaherty believes the new savings scheme will provide more retirement security for Canadians - especially for self-employed workers or people who work for small firms that don't offer pension plans.
The federal finance minister has subsequently shelved plans - which had been in the works for most of last year - for a modest enhancement of the government-run Canada Pension Plan.
The enriched CPP approach had initially been favoured by most provinces, but was opposed by Alberta, which has been seeking a form of private-sector pension (similar to the PRPP) with British Columbia for the past three years.
"The Canada Pension Plan, it's pretty well known, is a much better deal for my parents than it is for me, and a much better deal for me than it is for (the younger) generation because of under-contribution by earlier cohorts," reasons Alberta Finance Minister Ted Morton.
Morton explains that an enhanced CPP would limit the ability of boomers and other Canadians to invest their income in other savings strategies.
Currently, the CPP replaces up to 25 per cent of pre-retirement employment earnings, up to a maximum amount. For 2010, the maximum amount was $47,200, meaning maximum earnings for an individual are just more than $1,000 per month.
Options discussed during the Kananaskis meetings included increasing the percentage of income that may be replaced to 35 per cent, hiking the maximum amount, or both. Finance ministers will carefully examine the enriched CPP option while moving forward with the private-sector plan.
Under the PRPP approach, a company could arrange for a regulated financial institution to operate a plan, therein reducing the cost and complexity for small businesses to participate. For self-employed workers, the PRPP would be accessible without having a connection to an employer.
The Alberta Federation of Labour, however, is staunchly opposed to the private-sector plan, insisting the current retirement savings crunch will only grow worse unless the CPP is enriched.
The AFL, which represents nearly 140,000 public and private sector workers in the province, contends only 35 per cent of working Albertans are covered by a workplace pension (with the number falling each year). Furthermore, only 38 per cent of Albertans made RRSP contributions in 2008, with the average contribution being $3,200, adds AFL president Gil McGowan.
Indeed, an increasing number of people approaching retirement age are suddenly finding they don't have enough socked away for their post-working years, says Gary Pool, president of the Alberta Council on Aging.
One of the effects of the prolonged economic slump is that many Albertans aren't retiring at 65 and are now working for several years more than originally planned just to comfortably subsist, Pool explains.
And he fears the same problem will plague a host of boomers, although working longer will provide more stable income for people who don't have a large enough nest egg.
"A whole bunch of them aren't going to retire," Pool says. "Having more seniors and boomers working longer will help mute some of the financial challenges."
He argues the CPP and old age supplement must be improved if boomers and the next generation of workers are to save enough for retirement, believing it's difficult for farmers, the self-employed and small-business owners to save a lot of cash for private pension plans.
But Jack Mintz, a financial expert and head of the school of public policy at the University of Calgary, isn't convinced baby boomers or seniors of today are in dire financial straits.
Approximately 80 per cent of Canadians are doing "perfectly well" on their savings and retirement income, says Mintz, who delivered similar findings a year ago in a report to finance ministers.
The lower income is often able to replace much of the workplaces wages with CPP and old age security, while the affluent have saved enough from their working years to ensure comfortable income in retirement, he says.
It's a section of the middle class, who haven't saved enough and won't be able to live the same lifestyle in retirement with CPP and old-age security, who could be in for a financial jolt, adds Mintz, who supports the PRPP approach from Ottawa.
He notes the economic downturn has certainly hurt many Boomers and delayed some retirements. However, many Canadians, while not having registered pension plans, are stashing away sufficient retirement savings in RRSPs and other vehicles.
Just as important, boomers also have an enormous amount of equity secured in their homes, which have soared in price over the past decade and remain far more valuable than properties in the United States.
"Having equity is an important retirement income," Mintz says. "In Canada, we've been quite fortunate we didn't get the same hit to our wealth as in the U.S."
Yet, Robotham with the Calgary chapter of CARP doubts the PRPP will do much to improve Canadians' retirement scenarios, suggesting most people won't save cash for retirement if it's not mandatory.
And he has a message for those who suggest boomers and current seniors are financially well off in retirement because they own valuable homes.
"You can't eat the front step," Robotham says.
Calgary Herald, Tues Jan 4 2011Byline: Jason Fekete
NDP opposes environmental rule changes
While Ottawa and the province have clashed in the past, the Conservative federal budget released Thursday received a warm reception from Alberta's two main contenders for the premier's office.
The budget's highlights include raising the age for Old Age Security from 65 to 67 for those currently under the age of 54, the elimination of nearly 20,000 civil service jobs over three years and cuts to program spending, though overall expenditures will continue to climb as the government projects being out of deficit in 2015-2016.
The federal Tories are also promising a new shortened environmental review process for major natural resource industrial projects, including the proposed Northern Gateway pipeline to British Columbia, and to put some environmental reviews strictly under the provinces.
With a provincial election underway, both Progressive Conservative Leader Alison Redford and Wildrose Party Leader Danielle Smith linked themselves to the budget's measures.
Redford said her PC government has been working with the federal government to streamline environmental regulations and is similar to measures undertaken already in Alberta.
"We know that industry thinks this is a better way to be competitive. I think we'll see not just on the Gateway project but on other projects, this will be a tremendous improvement," she told reporters in Edmonton.
Redford praised the federal government's plans to balance the budget in three years without tax increases and noted her government's projection of a balanced budget in 2013, with no tax hikes.
In a news release, Smith - who has slammed the PCs for out-of-control spending - compared the federal financial document to Wildrose's budgetary plans.
She applauded the Tory budget for reducing "wasteful government spending and . . . unnecessary levels of bureaucracy."
Ben Brunnen, chief economist of the Calgary Chamber of Commerce, said "this is a good budget for Alberta business."
The changes to OAS include allowing for recipients to defer receiving their payments for up to five years with no penalty.
That's an incentive for those wanting to stay in the workforce to do so, helping to ease the labour shortage that is beginning to bite the province and is expected to get worse.
Raising the eligibility age in 2023 should also have a positive effect in the longer term on the labour pinch, said Brunnen.
While details are lacking, Ottawa has also pledged to make the temporary foreign worker program more aligned with labour market needs and to work with the provinces on improving the recognition of foreign credentials.
"This is just a full-marks budget," said Brunnen.
A spokesman for the Public Service Alliance of Canada said there has been no indication yet where the planned federal job cuts will take place, meaning the impact on Alberta civil servants is uncertain.
Alberta Federation of Labour president Gil McGowan said the Conservatives are destroying jobs, cutting services and making life harder for seniors for no good reason given the relatively healthy state of the government's books and the Canadian economy.
"These cuts are particularly galling because they're so unnecessary," he said. "This is a road map to a more conservative future where corporations matter more than citizens."
Redford said the government would review the impact on Alberta seniors of raising the age for OAS.
Ted Menzies, the MP for MacLeod and minister of state for finance, said the budget was designed to ensure there was no downloading to provinces.
The federal government will work with the provinces to ensure that changes to OAS don't affect provincial programs that kick in at age 65.
New Democrat Linda Duncan, Alberta's lone Opposition MP, said the federal promise of "one window" for environmental regulation is full of smoke given issues of federal, provincial and aboriginal jurisdiction.
The claim that major projects are hamstrung by red tape is a fallacy, she said.
"Show me one single project that's been denied. Show me an oilsands project that's been denied," said Duncan.
Calgary Herald, Fri Mar 30 2012 Byline: James Wood
Andrew Kohsel can testify on multiple fronts to a growing problem plaguing many of today's seniors -- and will soon spread to a large swath of baby boomers.
As the head of a Calgary seniors group and part-time financial adviser in his retirement, he knows that while the ranks of greying Canadians are growing, their bank accounts aren't.
Only 38 per cent of workers in Canada are covered by a pension plan, and only 33 per cent in Alberta -- one of the worst ratios in the country, according to provincial government data.
What's more, only two in 10 employees in the private sector have a company pension to help pay for expenses in their golden years. At the same time, the number of retirees is expected to swell as more baby boomers stop working.
The numbers don't add up. "There's a lot of people who aren't going to make it," Kohsel, president of the Calgary-based Coalition of Seniors Advocates, said of the plight facing some of the group's members.
"There's people that don't have enough money to put food on their shelves."
Indeed, insufficient retirement savings and lack of pension plans for millions of Canadians is the dilemma facing federal Finance Minister Jim Flaherty and some of his provincial colleagues, who are in Calgary for the two-day National Retirement Income Summit that starts today.
Conference participants will examine the financial challenges facing retiring Canadians, as well as how to reform the country's pension system and encourage more people to save for their golden years.
"The lower number in Alberta that actually have a pension plan is of concern," said Alberta Tory MP Ted Menzies, the parliamentary secretary to Flaherty and Ottawa's point man on pensions.
He cautioned, though, that federal and provincial governments must not adopt knee-jerk reforms that could cripple the current system.
"There isn't the immediate panic that we have to fix this tomorrow," Menzies added. "Let's make sure we fix it right, whatever we do."
Alberta Finance Minister Ted Morton, who is scheduled to speak at the conference, wasn't available for an interview.
Wild Rose Country has been seeking a pan-Canadian voluntary pension plan to supplement the Canada Pension Plan, but failing that, is prepared to establish a regional scheme with B.C. and possibly Saskatchewan.
The province has launched its own public consultation, seeking input on how to strengthen the retirement income system, including whether to adopt a voluntary, defined-contribution plan and boost payments to CPP, among other options.
Noel Somerville, chairman of a seniors task force for Public Interest Alberta, said the issue of retirement income should be a growing concern. Many Albertans don't understand the financial pressures once they retire, such as additional costs of health care often covered by employee benefit plans, he said.
"Many people find themselves with inadequate savings," Somerville said. "We are very concerned about the baby boomers who aren't ready for retirement."
The seniors task force is worried about the limited number of workplaces offering pensions, and disappearance of defined-benefit plans in favour of defined-contribution. The group wants a national supplemental plan that establishes uniformity across the country rather than scattered regional plans.
Kohsel and his Calgary-based COSA group, meanwhile, want the province to adopt a mandatory, defined-benefit plan that forces people to save for retirement and promises a specified monthly benefit.
"No matter how hard you try to do this voluntarily, there will be a hell of a lot of people who won't do it," he said.
The numbers suggest Canada's savings system certainly needs reform. Statistics Canada reviews in recent years of wealth, debt and savings have shown nearly one-third of working Canadians had no retirement savings, while many of the rest weren't socking away enough cash.
At the same time, the country's population is quickly aging. By 2031, about a quarter of Canadians will be older than 65, compared with 13 per cent in 2005, the federal agency forecasts.
Flaherty's stop in Calgary is part of the federal government's cross-country consultation tour. Public input is being sought on proposals such as fattening Canadians' retirement income through a mandatory enrichment of the CPP and a voluntary pension scheme to supplement the public system.
The results of the national consultations will be debated by federal and provincial finance ministers in either May or June, and then taken to individual cabinets for further discussion. No timetable has been set for a final decision, and the provinces have the option of proceeding on their own.
However, Menzies believes provinces are now stepping back from adopting a pan-Canadian or regional supplemental plan, instead focusing their efforts on other priorities and looking at alternatives.
"They've really backed off," Menzies said about the push from various provinces. "(Morton) shares our concern, but it will be interesting to see how hard he wants to push this."
Alberta's Official Opposition, though, is joining seniors groups in demanding the provincial and federal governments act quickly and adopt a mandatory supplemental plan.
"They definitely have to do something," said Alberta Liberal finance critic Hugh MacDonald. "When you see how many workers in the private sector don't have pensions, it should be made mandatory."
MacDonald stresses that any supplemental plan must be portable.
Alberta Federation of Labour president Gil McGowan said he's encouraged by the recent push to address what he believes is a looming pension crisis.
However, he argued a series of policy changes are needed to ensure future generations have appropriate retirement savings, including doubling CPP benefits over the next 15 years; making any supplemental plan mandatory; and introducing a federal pension insurance system.
"Many workers, especially when they're young, don't fully understand the importance of setting money aside for themselves for their retirement," McGowan said.
Calgary Herald, Mon Apr 12 2010
Byline: Jason Fekete
One Alberta labour group says it doesn't believe the provincial finance minister when it comes to CPP. In a letter published in a Charlottetown newspaper Sunday, Gil McGowan with the Alberta Federation of Labour says Ted Morton does not speak for most Albertans, who want pension reform. He says only 33 per cent of Albertans are covered by a pension plan, less than the national rate of 38 per cent.
660News, Mon Jun 14 2010
Unions fear attack on jobs will undermine economy, throw seniors into poverty
Labour leaders from across Alberta will be keeping a close eye on the federal budget today to assess the impact it will have on working families in the province.
"The federal government has an opportunity today to make the Canadian economy stronger and to make it work for average Canadians," says Gil McGowan, president of the Alberta Federation of Labour (AFL), which represents 145,000 workers.
"This budget could be used to help create good jobs – the kind of jobs that support families. We fear, however, that the Harper government will do the opposite and destroy jobs, which will weaken an economy they have described as fragile," he says.
"We also fear that the budget will undermine the retirement security of Canadians by cutting back on Old Age Security benefits to seniors, which risks throwing more elderly citizens into poverty."
Budget Watch 2012 events will be held in Edmonton, Calgary and Red Deer this afternoon. McGowan will be among labour leaders at the Edmonton event and will be available for comment. Other labour leaders will be available at the Calgary and Red Deer events.BUDGET WATCH 2012, EDMONTON TIME: 2 p.m. - 4 p.m. LOCATION: CUPE 474 Meeting Hall, 10989 – 124 Street, Edmonton. BUDGET WATCH 2012, CALGARY TIME: 2 p.m. - 4 p.m.LOCATION: Greenwood Inn, 3515 – 26 Street N.E., Calgary. BUDGET WATCH 2012, RED DEER
TIME: 2 p.m. - 4 p.m. LOCATION: Unit 4, 7464 – 50 Avenue, Red Deer.
Gil McGowan, AFL president, 780-218-9888
Amanda Freistadt, CLC Prairie Representative, 780-904-0517
An open letter to Canada's finance ministers: “Ted Morton does not speak for Albertans on CPP expansion!” Alberta Federation of Labour President urges fellow Canadians to move forward on retirement security
Edmonton - Alberta Federation of Labour President Gil McGowan released an open letter to Canada's provincial and federal finance ministers today, urging them to move ahead with reform to the Canada Pension Plan despite continued opposition from Alberta Finance Minister Ted Morton.
"Alberta Finance Minister Ted Morton does not speak for Albertans on the issue of retirement security," says McGowan, President of the AFL, which represents 140,000 Alberta workers.
Federal and provincial finance ministers will meet on December 20th in Kananaskis, Alberta. In recent months, a rare consensus in favour of CPP expansion has emerged among the provinces and the federal government, with the exception of Alberta.
"The rest of the country needs to know that two-thirds of Albertans disagree with Ted Morton, along with experts across the political spectrum, and ordinary Albertans from all walks of life," continues McGowan, adding that it appears some members of Morton's own Conservative caucus also disagree with his position.
The open letter to Canada's finance ministers argues that a recent Environics poll found that 66-per-cent of Albertans support an increase in CPP benefits and only 19-per-cent are opposed. On November 26th, Edmonton City Council passed a unanimous motion in favour of expanding CPP. The same week, the Calgary Herald editorial board endorsed CPP expansion without reservations.
McGowan adds that none of Alberta Finance Minister Ted Morton's claims about the negative effects of CPP expansion are supported by evidence. Rather, Albertans need CPP reform more than other Canadians - Albertans have lower workplace pension coverage than other Canadians and are able to save no more than other Canadians in RRSPs.
"Finance Minister Ted Morton has only suggested one alternative to CPP expansion - a voluntary scheme managed by the big banks and insurance companies. Polls show Albertans don't support those ideas, either," says McGowan, indicating that private, voluntary pension schemes come with extremely high fees and much more risk than the CPP.
"We urge Canadian finance ministers to do the right thing - and expand the Canada Pension Plan - as a way to ensure retirement security for all of us," concludes McGowan.
Gil McGowan, President, Alberta Federation of Labour -cell 780-218-9888 or 780-483-3021 or email@example.com
April 2010: Auditor General Report on Occupational Health and Safety; Temporary Foreign Workers; Pensions; Phone now to save union jobs
Lives of workers put at risk by governmentThe government's shocking failure to enforce its own workplace safety laws is putting thousands of workers at risk, according to a new report from the Auditor General. Not only have companies that have violated the Occupational Health and Safety Act been allowed to continue without penalty, some have been awarded Certificates of Recognition that earn them WCB discounts and help them win contracts. The AFL has long fought for stronger health and safety standards and enforcement. It now calls on the government to quickly implement all recommendations made by the Auditor General, including the naming of those companies that are repeat offenders. Workers have a right to know whether their workplace is safe or not. Go to Call to Action - Report of the Alberta Auditor General for details or to the AFL release.
It's time to stop the exploitation of vulnerable temporary foreign workersThe vast majority of temporary foreign workers in Alberta have been charged sometimes illegal fees ranging from $3,000 to $20,000 by "employment agencies," but the government of Alberta has failed to prosecute these agencies, says AFL's Temporary Foreign Worker Advocate. The government is now seeking feedback on changing legislation governing these agencies. We have until April 30 to tell them that we don't support exploitation. For more details ...
Alberta abandons leadership role in tackling crisis on pensionsFinance Minister Ted Morton has played down the seriousness of the pensions crisis facing Canadians, reversing the position taken earlier by the Alberta government. Rather than pushing for a much-needed boost to the pensions system, Morton claims there is no crisis and no need for urgent action. "It looks like the government's commitment to push for meaningful changes is starting to evaporate," says Gil McGowan, president of the AFL. For more information ...
Alberta continues to shed jobs while other provinces recoverThe latest figures from Statistics Canada reveal that unemployment in Alberta has risen to 7.5 per cent, its highest level since 1996 - and it's the only province that continues to lose jobs. There are 87,200 fewer Albertans working in full-time jobs today than there were at the top of the pre-recession boom in October 2008. While other provinces have embarked on stimulus programs to boost their economy, the Alberta government has chosen to stand idly by and watch jobs disappear. For details ... Urgent Action Phone now to save union jobs The Yellow Pages Group has decided it will no longer print and distribute White Pages phone books. This may mean the loss of 42 jobs of members of the Communications, Energy and Paperworkers Union at World Color in Edmonton, where the directories are printed. It's also bad news for seniors who may not have access to online directories. But there is a chance to reverse the decision and save jobs. If you want White Pages delivered to homes and offices, call 1-877-909-9356. For more details ... Events
2010 AFL Kids' Camp August 9 - 13, 2010
16th Annual AFL Kids' Camp, August 9 to 13, 2010. The theme for this year's camp is "Health and Safety: Not Just for Adults." The camp is open to children of all AFL affiliates.Camper Registration Form and Union Donations and Volunteer FormDeadline for registration is June 18, 2010. Did you know ... That there were 166 occupational fatalities in Alberta in 2008, compared to 154 the previous year; That 63 companies have failed to comply with Occupational Health and Safety orders after one year or more; That 31,000 employees work for those companies; That half of those companies that consistently fail to comply with OHS orders still hold valid Certificates of Recognition; andThat not one of those companies has been named by the Alberta government.
Re: "Premiers must stand up to Ottawa's cheap-labour strategy; Harper Tories have launched stealth attack on middle class," by Gil McGowan and Lana Payne, Opinion, Aug. 3.
This opinion piece criticizing federal reforms misses the mark on several issues.
Pension reform is about fairness and sustaining future pensions for all Canadians. Decisions taken this year will ensure we have a viable Canada Pension Plan into the future. Consider what's happening in Europe.
Employment insurance should be run as an insurance program, not a social welfare program. Its aim is to provide a financial bridge to help able-bodied unemployed Canadians find jobs where their skills are needed.
If the Temporary Foreign Worker Program is all about exploitation, how can you say construction workers making $30 to $40 an hour are being exploited? The assertion that employers will automatically pay temporary foreign workers 15 per cent less than their Canadian workers is also wrong. While federal guidelines permit flexible wage scales, they stipulate that all rates must be comparable to what workers in the company are paid.
It is also wrong to say Bill C-377 will restrict unions from spending. Rather, the proposed legislation calls for unions to account for and disclose how mandatory union dues are spent, in the same way charities and native bands do. Recent surveys suggest unionized workers in Canada support this type of legislation.
While union leaders across Canada are banding together to oppose reforms that are relevant in the 21st century, there are others who believe the Harper government should be applauded.
Edmonton Journal, Tues Aug 7 2012Letter by: Stephen Kushner, president, Merit Contractors Association, Edmonton
CPP Reform Delayed likely to be CPP Reform Denied – McGowan: Decision to ice CPP expansion in favour of “further study” bodes ill for Canadians' retirement security
Kananaskis - Alberta Federation of Labour Gil McGowan says the federal-provincial finance ministers' decision to put CPP expansion on ice misses an historic opportunity for retirement security for millions of working Canadians.
"Reform delayed is likely to be reform denied," says McGowan.
"It is clear what happened here: the federal government, along with a tiny minority of provinces, bowed to the pressure exerted by the financial services industry and succeeded in delaying improvements to the CPP," says McGowan. "Alberta Finance Minister Ted Morton has called this a good weekend for Alberta. I would say it's more appropriate to call it a great weekend for Canada's big banks," says McGowan.
Speaking from Kananaskis, McGowan notes there was a strong consensus from at least 6 provinces to move ahead with expanding CPP.
"The good news is there remains a strong appetite - from coast to coast to coast - for pension reform, and most provinces are unequivocal in their support of improving CPP," says McGowan, crediting provinces like Ontario, Manitoba, and Nova Scotia for exercising leadership in keeping CPP improvements on the table.
"It is crucial that 'further study' doesn't turn into another convenient excuse to do nothing," adds McGowan.
"We have been down this road before. In 1979, Canadian finance ministers began a CPP expansion process. It was quickly scuttled by the financial sector, which exerted enormous pressure on Alberta and Ontario's Conservative governments of the day," says McGowan.
"1979 was a cautionary tale for how vested interests can easily deny millions of Canadians a secure future via the most stable, predictable, and secure vehicle we have - the CPP," says McGowan.
"Canadians need to keep up the pressure on their provincial and federal politicians to make sure history does not repeat itself," says McGowan.
The President of the AFL adds that the agreement to move forward on a so-called "Pooled Retirement Pension Plan" - administered by the big banks - is at best a half-measure.
"At worst, this private-sector retirement savings scheme is a distraction from real reform. The plan is nothing more than glorified RRSPs, which have failed the majority of Canadians for decades. It will not solve the real problem: adequate replacement of pre-retirement income, based on a low-cost, low-risk plan that benefits modest income earners," says McGowan.
The Alberta Federation of Labour and the Canadian Labour Congress have an ongoing campaign for improvements to the CPP, with a modest increase to premiums and a doubling of CPP benefits over time. More details are at www.realpensionreform.org
Gil McGowan, President, Alberta Federation of Labour @ cell 780-218-9888 or office 780-483-3021
Dear Canada: Don't surrender on CPP reform: Finance ministers must stand up to pressure from Alberta, Ottawa
On Sunday and Monday, Alberta will be centre stage at what has the potential to become a key moment in Canadian history.
Finance ministers from across the country will gather in Kananaskis to discuss whether or not to expand the Canada Pension Plan (CPP) to address a looming crisis in retirement income.
If CPP is expanded to provide a more stable foundation for retirement security in Canada, it would represent one of our country's most important social policy changes since the introduction of Medicare.
It would also be a timely Christmas present for the millions of Canadians who worry about their retirement savings and who have been burned by RRSPs and mutual funds.
The big question is this: will the nine provincial finance ministers who support CPP expansion find the courage to make a deal in the public's best interest?
Or will they give in to pressure from Alberta Finance Minister Ted Morton -- who, for ideological reasons, has always opposed CPP expansion -- and his new ally in opposition, federal Finance Minister Jim Flaherty, who recently withdrew his support for CPP expansion as a result of pressure from Prime Minister Stephen Harper and the private investment industry?
Morton has been all over the media lately trying to downplay the need for change.
He has, for example, been trying to draw attention away from facts like these:
- -That even here in wealthy Alberta, half of current seniors have no individual savings at all (that's right ... zero),
- -That only 35 per cent of working Albertans are covered by a workplace pension (and the number is falling each year),
- -That only 38 per cent of Albertans made RRSP contribu-tions in 2008 and the average contribution was just $3,200 (hardly enough to build a retirement nest egg),
- -That the average fees charged by mutual funds are five times higher than the fees charged by CPP and can eat up between 40 and 60 per cent of an individual's investment earnings (no, that's not a typo), and
- -That CPP is financially sound and fully portable between jobs ... but only provides maximum annual benefits of about $11,000 per year (with the average annual payout being only $6,000),
In addition to ignoring the scope of the problem, Morton has also been sowing confusion about what CPP expansion really means.
In particular, he has been deliberately leaving the impression that CPP is a "social program" financed by taxpayers -- the implication being that an expanded CPP would be a reward to those who didn't have the foresight to save for themselves, paid for by those who did.
Nothing could be further from the truth. CPP is not a tax-funded program. It is financed by matched contributions from workers and employers.
An expanded CPP would simply mean that workers and employers would be required to put a little more into the system today so that the employees in question could get bigger retirement benefits in the future.
Helping Canadians save for themselves
In other words, an expanded CPP would provide better opportunities for Canadians to save for themselves (which, by the way, would have the effect of making them less reliant on tax-funded programs).
So, why are Ted Morton and, more recently, Jim Flaherty opposed to helping Canadians save for themselves?
Sadly, the answer to that question can be boiled down to ideology and self-interest.
Ideologically, Morton is a right-winger who prefers policy solutions that help businessmen put profits in their pockets.
Flaherty is not nearly as ideological -- but the federal Conservatives are close to Canada's banking and financial industry which has been waging an aggressive lobbying campaign against CPP expansion.
The industry fears that if Canadians are able to invest more of their money through CPP then they'll put less money into things like private mutual funds.
And reduced investment in mutual funds would mean fewer bonuses and fewer and BMWs for bankers and mutual fund managers (heaven forbid!)
The fact that Flaherty has allowed himself to be swayed by Morton and the banking community is more than a disappointment -- it's a betrayal.
Instead of supporting CPP expansion, Flaherty is now peddling a proposal for "pooled funds" which sounds suspiciously like a plan recently floated by the banking industry. These funds would (surprise, surprise) by run by banks, insurance companies and the mutual fund industry (for a reasonable fee, of course).
Unlike CPP, these new funds would not provide a guaranteed benefit, and employers would not be required to make matching contributions (meaning most of them wouldn't).
In other words, these funds would be nothing more than glorified RRSPs -- and we've seen how well that's worked for middle-class Canadians.
'Noble nine' face tough fight
So, as our finance ministers head into their pivotal meeting in Kananaskis, the battle lines have been clearly drawn.
On one side we have Morton, Harper and the banks. On the other side we have nine provinces, dozens of policy experts who endorse CPP expansion and the overwhelming weight of public opinion.
Clearly, the "noble nine" will have to fight hard to put the idea of CPP expansion back on the table as the preferred option.
If they don't, we could end up repeating the scenario that unfolded in 1979 when similar proposals for CPP expansion were scuttled by united opposition from conservative governments in Alberta and Ontario -- supported behind the scenes by the big banks and mutual-fund companies.
Will Canada's finance ministers stand up and do the right thing this weekend? For the sake of future generations of Canadians, let's hope they decide to make history.
Edmonton Journal, Sat Dec 18 2010Byline: Gil McGowan
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It's a unique national tradition, as Canadian as the Stanley Cup playoffs.
It's called RRSP season. From the time our first post-Christmas credit card bills arrive, we are bombarded for the next two months with ads urging us to invest early and invest often and warning we'll end up working at McDonald's in our old age if we don't max out our RRSPs.
For those who follow the advice, the reward is supposed to be "Freedom 55": walking down the beach with your loved one (and, no doubt, a good supply of Viagra), thanks to your wise financial stewardship. It's a do-it-yourself recipe for retirement security. The flip side of the coin is a blame-the-victim ideology: if someone's poor in retirement, it's their own fault since they didn't pick the right mutual fund.
This year, RRSP sales were hampered by widespread uncertainty about the global financial meltdown (led by the U.S. sub-prime lending crisis). Once again, the private financial system is revealing its propensity to regularly self-destruct, and that alone should give us plenty reason to question trusting our retirement future to the red-suspendered traders throwing darts at dartboards on Bay Street and the other financial centres of the world.
But quite apart from the ongoing rollercoaster of the financial markets, there's another big, unreported problem with the whole notion of self-financed RRSP retirements. Quietly, the fundamental economics of the whole RRSP system have deteriorated markedly in recent years. Millions of frugal Canadians, if even if they follow Bay Street's advice and invest every year, aren't going to get nearly as much from their personal savings as they thought they would.
In fact, do-it-yourself pensions have been hammered by exactly the same economic and demographic forces that have created much better-known problems with group pension plans: Growing life expectancy, lower investment returns, and lower interest rates. For group pension plans, these factors have produced multi-billion dollar funding deficits- and some very scary headlines. Most group plans are working through these problems, although challenges remain.
For RRSPs, however, the resulting pension "deficits" are parceled into nice little individual packages. Indeed, the whole premise of RRSPs is to shift pension risk and responsibility from governments and employers onto individuals. These personalized deficits never generate big scary headlines. Imagine the Report on Business coverage: "Joe Blow faces $100,000 pension shortfall!" And since neither governments nor employers are harmed (at least not directly) by this hidden crisis, they aren't agitating for change. In aggregate, however, the RRSP crisis will cause enormous pain to millions of Canadians.
Here's the math. Right now, Canadians have $600 billion tied up in RRSPs. (About 70 per cent of that is held by the richest fifth of the population - and the very unequal distribution of RRSPs is another important probl m of this whole do-it-yourself pension system.) Back in the roaring 1990s, financial advisors used to promote RRSPs with logic something like this (all numbers are adjusted for inflation). Suppose you make $50,000, you sock away 5 per cent of that per year and you earn real returns (after inflation) of about 5 per cent. After 30 years you have a tidy nest egg of about $165,000. Assume you'll live 18 years after retiring (in your early 60s), and interest rates continue to earn about 4 per cent (again after inflation). Your RRSP will then generate monthly income of $1,050, replacing over 25 per cent of your pre-retirement income. Throw in public pensions (old age security and CPP) and any workplace pension you may receive, and you won't be living in Bermuda - but you won't be working at McDonald's either.
This whole strategy was iffy at the best of times. In reality, most Canadians have a hell of a time paying their monthly bills, let alone setting aside a few thousand dollars a year for their personal pension. Among that half of Canadians who have an RRSP at all, the median account is only $30,000 - far too small even to finance this modest personal pension. And unfortunately, this RRSP arithmetic has been undermined further by the three unfavourable changes listed above. First, life expectancy has grown by about 2 years (more for men than for women); now your RRSP has to last 20 years, not 18. Second, investment returns have fallen by at least a percentage point (and the old philosophy that stocks reliably earn morethan bonds burst long ago). Third, long-term interest rates (which determine how much pension you can "buy" with your RRSP) have fallen even further, by about 2 percentage points. These seem like small changes, but they add up to huge problems for pensions - just as much for RRSPs as for group plans.
Suddenly, your nest egg after 30 years of scrimping is only $140,000. Worse yet, interest rates are lower, plus you're expected to live longer (how fiscally inconvenient!). So that $140,000 now buys a monthly pension of only $700 - just 16 per cent of your pre-retirement income. You have a pension shortfall of $350 per month or over $4,000 per year, compared to what you thought you would get.
Multiply that by the number of Canadians who've been duped into believing they can buy their own retirement, and you have a pretty big number. To get back that $1,050 monthly pension, contributions should be 50 per cent higher: 7.5 per cent of salary, rather than 5 per cent. Capitalize that unmet funding requirement and we can conclude that Canadians' RRSP funds, in aggregate, are something like $300 billion "too small." I think that deserves a scary headline.
Either individual RRSP holders will have to cough up $300 billion in additional contributions and quickly, or else they will have to tighten their post-retirement belts considerably. Either way, it's a 12-figure burden that's been slipped squarely (and silently) onto the shoulders of individual savers - who are unorganized and have no one to advocate for them.
Maybe the situation isn't quite so bleak. Maybe interest rates will bounce back. Maybe the stock market will never crash again. Maybe Canadians will stop living longer.
More likely, however, millions of Canadians will be sorely disappointed when they retire - even if they did pick the right mutual fund. Worse yet, many will see an even larger share of their savings diverted to Ottawa's clawback on pension benefits. Group pension plans face similar funding challenges, but at least the problem is acknowledged - and in many cases there are unions and pension regulations to defend the rights of current and future pensioners. This huge, hidden crisis in the RRSP system, however, is occurring without any explicit recognition of the costs and pain that will result. This demonstrates the folly of any pension system designed around individual accounts.
Book Excerpt:The RRSP Myth
Note: The following is an excerpt from Paper Boom by Jim Stanford, published in 1999 by Canadian Centre for Policy Alternatives. While somewhat out-of-date, the article remains some of the best analysis of how RRSPs contribute to inequality in Canada. The specific data has changed in the ensuing 10 years, but the basic trends are identical.
Canada's RRSP program may qualify as the most "democratic" form of private financial investment in our economy. But this does not imply that RRSPs are especially fair: the majority of RRSP funds are owned by high-income Canadians, while more lower- and middle-income households own economically trivial amounts, or no RRSPs at all. And RRSP tax subsidies are distributed to households in a perverse manner: the RRSP holdings of high-income investors are actually subsidized at a higher rate than those of other Canadians, because of the manner in which these subsidies are calculated.
Unlike many other tax subsidy programs (such as the child tax credit for poor families), the RRSP subsidy is calculated as a tax deduction (in which the legal amount of RRSP contributions is deducted from income before the investor's tax bill is calculated), rather than as a tax credit (in which the subsidy is added back at the end of the income tax form, after the individual's taxes have already been calculated). The value of a tax deduction depends on the rate of tax which the investor would otherwise be paying on the income that is deducted. Higher-income taxpayers pay a higher rate of tax, hence the RRSP deduction is worth proportionately more to them, and hence they receive a sweeter subsidy for theirRRSP investments.
Despite these ironies, however, the fact that RRSP investments are subsidized, and that the total tax-subsidized contribution is limited (at present to a maximum of 18% of the previous year's earned income, to a ceiling of $75,000), means that RRSP investments are distributed far more equally across households than are other financial investments.
Most working and middle-income Canadians do not come closeto using up the total value of RRSP subsidies available to them. In 1997, Canadians contributed more to RRSPs than in any other year in history: a record of $27 billion. But this staggering total represented just 13% of what Canadians could have contributed if each taxpayer had used up the full RRSP "room" available to them. Only about 15% of Canadian taxpayers contributed the maximum allowed to their RRSPs.
Most of the unused RRSP room is concentrated at the bottom of the income spectrum, where a shortage of disposable income constrains household saving potential. Surprisingly, then, the distribution of RRSPs is not very equal at all. There are a couple of data sources supporting this conclusion. The income tax data cited earlier break down total RRSP contributions by income category. High-income individuals are far more likely to invest in an RRSP than those with less income. Less than one-quarter of Canadians who earned less than $50,000 contributed to an RRSP in 1995, compared to 70% of those who earned over $50,000, and a whopping $12,000 each (more than $1,000 per month) for those pulling in more than $100,000. The end result: in 1995, a full 50% of RRSP contributions was claimed by just the top 11.7% of tax-filers (those earning over $50,000).
The top one-tenth of taxpayers, in other words, accounted for about five times more than their per capita share of RRSP contributions. The top 1.5% of tax filers (those earning over $100,000 in 1995) accounted for 14% of all RRSP contributions - about 10 times greater than their share of the population.
So even for this most "democratic" form of (subsidized) financial investment, the clear majority of wealth is concentrated in the highest-income segment of society: a group which perversely claims an even larger share of total government support for these investments.
This picture of the unbalanced pattern of RRSP investment in Canada is further confirmed by a second source of data: Statistics Canada's biennial reports on pension fund investments, including RRSPs. According to this data, those Canadians reporting 1995 total income in excess of $80,000 - the top 2.7% of tax payers that year - accounted for almost 20% of all RRSP contribution (and, once again, an even higher share of all RRSP subsidies).
In contrast, those taxfilers earned under $40,000 in 1995 (accounting for 80% of all taxfilers) contributed just one-third of all RRSP monies deposited that year, and received an even smaller share of total RRSP subsidies. So even within Canada's RRSP system, which in theory is supposed to support the retirement savings of average citizens, the ownership of financial wealth is highly concentrated. Yet the total stock of RRSPs - some $200 billion by the end of 1995 - still accounts for a small share (perhaps one-eighth) of all household financial investments in Canada.
Outside of the RRSP system, wealth is distributed even more unequally; few lower- and middle-income Canadians have any financial assets at all outside of their RRSP holdings.